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5-Day Debt Reduction Plan: Pay It Off

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[Editor's Note: This is part four of a five-part series on debt reduction. To read more, see the rest of the 5-Day Debt Reduction Plan.]

You've combed through your budget and you've found extra money to direct toward debt repayment — which means the time has finally arrived to pay it off.

Getting rid of debt isn't only about improving your budget and having the right tools — you also need the right strategy to succeed. Although there isn't necessarily a "best" way to pay off debt, some strategies can get you to the finish line quicker. You need to understand different pay off methods and do what works best for you.

There are two popular ways to attack your credit card debt. The first is to pay the minimum on each card except the card with the smallest balance. That card you'll throw all the money you can at it. This is called the Snowball method.

The other method is to pay the minimum on each card except the card with the highest interest rate. You'd put in all the money you can into that card. This is called the Avalanche method. Which one is best for you depends on your personality.

Debt Avalanche

There are two factors to consider when paying off debt: the amount you owe and your interest rate. When you avalanche your debt, you focus on paying off the debt with the highest interest rate first, regardless of the balance. This approach prioritizes debt according to costs. The higher your interest rate, the more it'll cost to carry the balance. So the idea is to get rid of your most expensive debt as early as possible.

If you've been following this series, you've (hopefully) already written down your debts including amounts and interest rates. The next step is taking your "found" money and making higher payments on the debt with the highest rate, while only making minimum payments on your other debts. Once you've paid off this debt, move on to the balance with the next highest interest rate and continue the cycle until you're debt-free.

Using the debts in the example from Day 2, you'd target Credit Card #3 first, then Credit Card #2 and so on until Credit Card #1 is paid off.

Total Debt: $10,000

Monthly Payment: $200 minimum + $300 "found" money = $500

Months to Payoff: 25

Interest Paid: $1,811

This method will result in you paying the least amount of interest possible.

Debt Snowball

This method is similar to the Avalanche, but instead of concentrating your efforts on the debt with the highest interest rate, you focus on the debt with the smallest balance. You'll make higher payments on this debt and minimum payments on all other debts. And once you've paid off this balance, you'll funnel the money to the debt with the next smallest balance, and so on. Using the debts in our list, you'd start at Credit Card #4, move to Credit Card #1, and so on until you paid off Credit Card #3.

Total Debt: $10,000

Monthly Payment: $200 minimum + $300 "found" money = $500

Months to Payoff: 26

Interest Paid: $2,092

Although the Snowball takes a month longer than the Avalanche — and costs more in interest — it's still very popular. The Snowball lets you tackle easy balances first, and you see results of your efforts right away, which can give a psychological push to continue on the path. Even that small amount of encouragement will help you stay the course over the long term.

A Simple Debt Repayment Calculator to Try

You can use the same debt repayment calculator we used to crunch your own numbers and compare strategies. You'll find a payment plan, too, that tells you how much to send to each creditor every month of the plan until it is paid off. How easy is that?

Debt Repayment Tactics That Work

Whichever method you choose, remember that debt repayment isn't easy. But don't give up. I never promised this would be a walk in the park, but there are several tactics to keep you on the right track.

1. Don't Forget Your Budget

Finding extra money for repayment required revamping your budget and coming up with a monthly spending plan that prioritized expenses. For any repayment plan to work, you have to remember and stick with your budget, or else you'll revert to bad habits. Don't forget to revisit your budget every week and look back month-to-month to track your income and spending. You don't want frivolous spending to creep back into the picture and throw you off track.

2. Make a Payment Every Two Weeks

Some creditors accept partial payments and allow customers to make more than one payment a month. Rather than make one monthly payment, break up the payment over two weeks. Since credit cards typically charge interest on a daily basis, the sooner you get a payment to your creditors, the less interest you pay. Also, making bi-weekly payments allows you to get in one extra month of payment each year (you'll make 26 payments, the equivalent of 13 months). This is an important tip to remember! If you owe $3,000 on a credit card with an interest rate of 16% and you make a $100 payment each month, you can save $100 and pay off the balance four months sooner by switching from a monthly payment to a bi-weekly payment.

3. Redirect Money From "Almost" Impulse Buys

You're only human, so yeah, at times you'll be tempted to make an impulse buy. Like all vices, you have to learn ways to overcome these urges.

"If you feel the urge to buy a new pair of shoes or sunglasses, take a quick peek at your credit card debt by viewing your mobile app," recommends consumer and money-saving expert Andrea Woroch. "This will remind you of your debt-free goals and every time you seriously avoid an impulse purchase, make a payment in the amount that you would've used on that item."

4. Implement a Spending Freeze

A spending freeze can jump-start debt elimination, and it doesn't have to be for an extended period. If you can't handle a six or 12-month freeze, shoot for one to three months. For this to work, you must commit to only buying necessities — no matter what. This means no eating out, no movies, no coffee runs, no hair and nail services, no eBay shopping, no extras of any kind. A spending freeze doesn't mean you can't have fun, but you'll have to get creative and look for ways to entertainment yourself for free. Keep track of how much you're saving and put this money toward debt. Always remember to "bank your savings!"

5. Automate Your Payments

If you don't think you're disciplined enough to increase monthly debt payments on your own, automate your finances. You can set up automatic payments between your creditor and bank. You choose the payment amount and the payment date. All you have to do is make sure there's enough funds in your account.

6. Inquire About a Cheaper Interest Rate

Remember when your mom told you that "You'll never know unless you ask?" Well, she was right (again!), and getting a cheaper credit card rate is often a matter of asking for it. Your creditors may not voluntarily lower your rate, but they might cut you some slack if you request one, especially if you have a good payment history and threaten to take your business elsewhere. If your credit card company won't budge on your rate, you can apply for another credit card with a lower APR and move your balance from a high-rate card to a low-rate credit card. You also can look into refinancing loans to see if you qualify for a lower interest rate. A lower rate reduces your monthly payment, but if you want to chip away at your debt faster, continue making the original payment.

7. Do a Balance Transfer

If you can commit to a certain repayment budget, you can look into getting a new credit card with a 0% APR for balance transfers promotion. How this works is simple: transfer your existing debt from your old cards to your new one. During the promotional time period, you are charged zero interest.

For example, say you can get approved for a card with a 15 month intro APR of 0%, and you transfer $10,000. After 15 months of $500 payments, your balance will be a mere $2500. After that, the interest rate kicks in. Using 13% APR, you'll pay off the rest of the balance in 6 months with $85 in interest cost. That means instead of 25-26 months and $2,000 in interest, the balance transfer option saved you $1,900 in interest and you're debt free four to five months earlier!

There are several things to consider when doing a balance transfer. The most important thing is that you don't deviate from your repayment budget just because you're no longer paying interest.

Debt repayment is a process, but you'll finish strong as long as you keep your eye on the prize and remain on the right path. I'll share some tips about that — and what comes after you've eliminated your debt in the final installment of the series.

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

Wise Bread is an independent, award-winning, advertising-supported website. Many credit card offers that appear here are from companies from which Wise Bread receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). Wise Bread does not include all card offers in the marketplace.

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